View all news

Victory Capital Reports First Quarter 2018 Results

05/08/2018

First Quarter 2018 Highlights1

  • Assets under management (“AUM”) of $60.9 billion as of March 31, 2018, an 8% increase from March 31, 2017
  • Strong investment performance, with 87% of AUM outperforming its respective benchmarks over the trailing one-year period, 71% over the three-year period, 83% over the five-year period, and 79% over the ten-year period ended March 31, 2018
  • Net outflows of $633 million
  • $105 million in revenue, a 4% increase from the first quarter of 2017
  • GAAP earnings of $0.16 per diluted share, a 100% increase over the GAAP earnings per diluted share for the first quarter of 2017
  • Adjusted Net Income with tax benefit per diluted share of $0.40, a 33% increase over the Adjusted Net Income with tax benefit per diluted share for the first quarter of 2017
  • Operating margin of 26.0%, up from 19.4% in the first quarter of 2017
  • Adjusted EBITDA margin of 37.9%, up from 33.4% in the first quarter of 2017

CLEVELAND, May 08, 2018 (GLOBE NEWSWIRE) -- Victory Capital Holdings, Inc. (NASDAQ:VCTR) (“Victory Capital” or the “Company”) today reported its results for the first quarter ended March 31, 2018.

“In a quarter that marked a return to volatility for the equity markets, I am pleased to report that Victory Capital delivered very solid results, said David Brown, Chairman and Chief Executive Officer. Our Investment Franchises and Solutions Platform continued to deliver compelling long-term investment performance, gross flows for the quarter remained robust at $3.7 billion, and operating margins were strong.

“We continue to achieve strong momentum in our Solutions Platform, including our VictoryShares ETFs. AUM in our ETFs grew to $2.7 billion, an increase of nearly 19% quarter over quarter, and we expect client demand for rules-based strategic beta strategies to continue to grow throughout 2018.

“Total AUM was $60.9 billion as of March 31, 2018, an 8% increase from March 31, 2017. AUM declined from $61.8 billion at December 31, 2017, due to market depreciation and net outflows of $633 million for the quarter. Given the elevated level of client rebalancing activity we experienced and the lumpiness of our business quarter to quarter with respect to flows, the outflows were not outside our expectations. These results follow a net-flow-positive Q4 2017, highlighting the importance of looking at flows on an annual basis versus quarter to quarter.

“Looking ahead, we remain committed to creating long-term value for our shareholders through the disciplined execution of our corporate vision, which combines strategic acquisitions with organic growth. We believe our next generation, integrated multi-boutique business model is attractive to investment firms looking for a strategic partner, and we have an active pipeline of potential M&A opportunities. Additionally, we continue to focus on growing organically by leveraging the capabilities of our Franchises and Solutions Platform. Our “won-but-not-funded” pipeline is healthy as are our overall sales prospects. As in the past, serving the needs of our clients remains our top priority.”

1 Adjusted measures are non-GAAP financial measures.  An explanation of these non-GAAP financial measures is included under the heading “Information Regarding Non-GAAP Financial Measures” at the end of this press release.  Please see the non-GAAP reconciliation tables.

The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results.

         
(in millions except per share amounts or as otherwise noted)        
             
    For the Three Months Ended
    March 31,   December 31,   March 31,
     2018     2017     2017 
Assets Under Management          
  Ending $   60,855     $   61,771     $   56,622  
  Average     62,020         60,354         56,277  
             
Flows          
  Gross $   3,685     $   4,371     $   4,725  
  Net     (633 )       294         (386 )
  Net flows excluding Diversified Equity(1)     (633 )       294         (54 )
             
Consolidated Financial Results (GAAP)          
  Revenue $   105.0     $   105.6     $   100.7  
  Operating expenses     77.7         78.7         81.1  
  Income from operations     27.3         26.9         19.6  
  Operating margin   26.0 %     25.5 %     19.4 %
  Net income     10.5         11.2         4.4  
  Earnings per diluted share $   0.16     $   0.19     $   0.08  
             
Adjusted Performance Results (Non-GAAP)(2)          
  Adjusted EBITDA $   39.8     $   40.0     $   33.6  
  Adjusted EBITDA margin   37.9 %     37.9 %     33.4 %
  Adjusted net income     23.1         18.1         13.0  
  Tax benefit of goodwill and acquired intangibles      3.3         5.0         4.9  
  Adjusted net income with tax benefit     26.4         23.1         17.9  
  Adjusted net income with tax benefit per diluted share $   0.40     $   0.39     $   0.30  
             
(1) In May 2017, the Company made a  decision to exit the Diversified Equity Franchise; all remaining AUM was transferred to the Munder Capital Management Franchise to manage beginning May 15, 2017.
(2) Adjusted EBITDA and Adjusted Net Income are non-GAAP financial measures.  Reconciliation of each of Adjusted EBITDA and Adjusted Net Income to net income have been provided in the non-GAAP reconciliation tables in this press release.  An explanation of these non-GAAP financial measures is included below under the heading "Information Regarding Non-GAAP Financial Measures". 
   

AUM, Flows and Investment Performance

Victory Capital’s AUM declined by $0.9 billion to $60.9 billion at March 31, 2018, compared to $61.8 billion at December 31, 2017. The decrease was due to market depreciation of $0.3 billion and net outflows of $0.6 billion. Gross flows for the first quarter were $3.7 billion

As of March 31, 2018, Victory Capital offered 72 investment strategies through its nine autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM and strategies as of March 31, 2018.

                 
    Trailing   Trailing   Trailing   Trailing
    1-Year   3-Years   5-Years   10-Years
Percentage of AUM Outperforming Benchmark 87 %   71 %   83 %   79 %
Percentage of Strategies Outperforming Benchmark 75 %   70 %   76 %   72 %
                       

 

First Quarter of 2018 Compared to Fourth Quarter of 2017

For the quarter ended March 31, 2018, GAAP net income declined 6% to $10.5 million, or $0.16 per diluted share, compared to GAAP net income of $11.2 million, or $0.19 per diluted share, for the fourth quarter of 2017. GAAP operating margin was 26.0% for the quarter compared to 25.5% for the fourth quarter of 2017. Adjusted Net Income with tax benefit increased 14% to $26.4 million, or $0.40 per diluted share comprised of $0.35 per diluted share in Adjusted Net Income and $0.05 per diluted share in tax benefit, compared to $23.1 million, or $0.39 per diluted share comprised of $0.30 per diluted share in Adjusted Net Income and $0.09 per diluted share in tax benefit, for the fourth quarter of 2017.

Adjusted EBITDA and Adjusted EBITDA margin were $39.8 million and 37.9%, respectively, for the first quarter of 2018, essentially flat compared to the fourth quarter of 2017.

  • Revenue was $105.0 million, a slight decline from $105.6 million for the fourth quarter of 2017.
  • Operating expenses declined to $77.7 million, compared to $78.7 million in the fourth quarter of 2017 due to operating efficiencies, partially offset by costs associated with the debt refinancing.

First Quarter of 2018 Compared to First Quarter of 2017

For the quarter ended March 31, 2018, GAAP net income was $10.5 million, or $0.16 per diluted share, compared to $4.4 million, or $0.08 per diluted share, in the first quarter of 2017. GAAP operating margin increased to 26.0% for the quarter from 19.4% for the first quarter of 2017. Adjusted Net Income with tax benefit increased 47% to $26.4 million, or $0.40 per diluted share comprised of $0.35 per diluted share in Adjusted Net Income and $0.05 per diluted share in tax benefit in the first quarter of 2018, compared to $17.9 million, or $0.30 per diluted share comprised of $0.22 per diluted share in Adjusted Net Income and $0.08 per diluted share in tax benefit, in the first quarter of 2017.

Adjusted EBITDA and Adjusted EBITDA margin were $39.8 million and 37.9%, respectively, for the first quarter of 2018, compared to $33.6 million and 33.4%, respectively, for the first quarter a year ago. Net income, Adjusted Net Income and Adjusted EBITDA increased due to higher revenue coupled with operational efficiencies, the successful integration of RS Investments and, specific to net income and Adjusted Net Income, a reduction in the tax rate and decreased interest expense during the quarter as a result of refinancing activities which were partially offset by one-time write-offs of debt issuance and debt discount costs. 

  • Revenue increased $4.3 million to $105.0 million, compared to $100.7 million for the first quarter of 2017, due to higher average AUM, partially offset by a decrease in the realized fee rate due to asset mix.
  • Operating expenses decreased 4% to $77.7 million, compared to $81.1 million in the first quarter of 2017, primarily due to operational efficiencies and the successful integration of RS Investments.

Balance Sheet / Capital Management

Cash and cash equivalents were $12.3 million at March 31, 2018, compared to $12.9 million at December 31, 2017. During the quarter, the Company concurrently executed a $166.5 million IPO and $360.0 million debt refinancing which provided the Company with a 7-year term loan facility and established a 5-year revolving credit facility with aggregate commitments of $50.0 million.  The Company used the net IPO proceeds of $156.5 million, which included the net proceeds from the underwriters’ exercise of their option to purchase additional shares, and $20.2 million of cash on hand to pay debt down from $499.7 million at year end to $323.0 million at March 31, 2018, a 35% reduction during the quarter. 

Subsequent to quarter-end, the Company paid down an additional $18.0 million of debt, bringing its term loan balance to $305.0 million at May 8, 2018. The Company also increased its revolving credit facility to $100.0 million.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call and webcast at 10:00 a.m. Eastern Time today, May 8, 2018, to discuss its financial results.  Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (866) 465-5145.  A recorded replay can be accessed through May 22, 2018 by dialing (855) 859-2056; passcode: 6887603.

A slide presentation relating to the first quarter 2018 results will be accessible prior to the scheduled conference call.  The slide presentation and webcast of the conference call can be accessed on the Events and Presentations page of the Company’s investor relations website at https://ir.vcm.com.

About Victory Capital

Victory Capital is an investment management firm operating a next-generation, integrated multi-boutique business model with $60.9 billion in assets under management as of March 31, 2018.

Victory Capital’s differentiated model is comprised of nine Investment Franchises, each with an independent culture and investment approach. Additionally, the Company offers a rules-based Solutions Platform, featuring the VictoryShares ETF brand, as well as custom and multi-asset class solutions. The Company’s Investment Franchises and Solutions Platform are supported by a centralized distribution, marketing and operational environment, in which the investment professionals can focus on the pursuit of investment excellence.

Victory Capital provides institutions, financial advisors and retirement platforms with a variety of asset classes and investment vehicles, including separately managed accounts, collective trusts, mutual funds, ETFs and UMA/SMA vehicles.

For more information, please visit www.vcm.com.

FORWARD-LOOKING STATEMENTS 

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “assume,” “budget,” “continue,” “estimate,” “future,” “objective,” “outlook,” “plan,” “potential,” “predict,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Victory Capital’s control, as discussed in Victory Capital’s filings with the SEC, that could cause Victory Capital’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements.

Although it is not possible to identify all such risks and factors, they include, among others, the following: reductions in AUM based on investment performance, client withdrawals, difficult market conditions and other factors; the nature of the Company’s contracts and investment advisory agreements; the Company’s ability to maintain historical returns and sustain its historical growth; the Company’s dependence on third parties to market its strategies and provide products or services for the operation of its business; the Company’s ability to retain key investment professionals or members of its senior management team; the Company’s reliance on the technology systems supporting its operations; the Company’s ability to successfully acquire and integrate new companies; the concentration of the Company’s investments in long-only small- and mid-cap equity and U.S. clients; risks and uncertainties associated with non-U.S. investments; the Company’s efforts to establish and develop new teams and strategies; the ability of the Company’s investment teams to identify appropriate investment opportunities; the Company’s ability to limit employee misconduct; the Company’s ability to meet the guidelines set by its clients; the Company’s exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; the Company’s ability to implement effective information and cyber security policies, procedures and capabilities; the Company’s substantial indebtedness; the potential impairment of the Company’s goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to the Company’s ETF platform; the Company’s determination that Victory Capital is not required to register as an "investment company" under the 1940 Act; the fluctuation of the Company’s expenses; the Company’s ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and the Company’s ability to respond to regulatory developments; the competitiveness of the investment management industry; the dual class structure of the Company’s common stock; the level of control over the Company retained by Crestview GP; the Company’s status as an emerging growth company and a controlled company; and other risks and factors listed under "Risk Factors" and elsewhere in the Company’s filings with the SEC.

Such forward-looking statements are based on numerous assumptions regarding Victory Capital’s present and future business strategies and the environment in which it will operate in the future. Any forward-looking statement made in this press release speaks only as of the date hereof. Except as required by law, Victory Capital assumes no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.

INVESTOR RELATIONS WEBSITE

Victory Capital may use the Investor Relations section of its website, https://ir.vcm.com, to disclose material information to investors and the marketplace as a means of disclosing material, non-public information and for complying with disclosure obligations under Regulation Fair Disclosure (“Reg FD”).  Victory Capital encourages investors, the media and other interested parties to visit its investor relations website regularly.

Contacts
Investors:
Lauren Crawford, 310-622-8239
lcrawford@finprofiles.com

Media:
Tricia Ross, 310-622-8226
tross@finprofiles.com

 
Victory Capital Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(unaudited; in thousands except shares)
           
  For the Three Months Ended
  March 31,   December 31,   March 31,
   2018     2017     2017 
Revenue          
Investment management fees $   89,130     $   89,206     $   84,115  
Fund administration and distribution fees     15,834         16,440         16,546  
Total revenue     104,964         105,646         100,661  
           
Expenses          
Personnel compensation and benefits     36,803         37,339         35,650  
Distribution and other asset-based expenses     25,161         25,213         26,881  
General and administrative     9,056         7,947         8,921  
Depreciation and amortization     6,412         6,570         8,154  
Change in value of consideration payable for acquisition of business     -         (269 )       -  
Acquisition-related costs      -         659         363  
Restructuring and integration costs     264         1,261         1,130  
Total operating expenses     77,696         78,720         81,099  
           
Income from operations     27,268         26,926         19,562  
Operating margin   26.0 %     25.5 %     19.4 %
           
Other income (expense)          
Interest income and other income/(expense)     (37 )       (2,097 )       345  
Interest expense and other financing costs     (7,092 )       (10,308 )       (12,628 )
Loss on debt extinguishment     (6,058 )       -         -  
Total other income (expense), net     (13,187 )       (12,405 )        (12,283 )
Income before income taxes     14,081         14,521         7,279  
           
Income tax expense     (3,557 )       (3,312 )       (2,866 )
Net income $   10,524     $   11,209     $   4,413  
Earnings per share - basic $   0.17     $   0.20     $   0.08  
Earnings per share - diluted     0.16         0.19         0.08  
Weighted average shares outstanding - basic     61,599,057         55,119,711         54,813,823  
Weighted average shares outstanding - diluted     66,283,621         59,768,134         58,746,227  
Dividends declared per share $   -     $   0.23     $   2.19  
                       

 

 
Victory Capital Holdings, Inc. and Subsidiaries
Reconcilation of GAAP to Non-GAAP Measures
(unaudited; in thousands except shares)
             
  For the Three Months Ended  
  March 31,   December 31,   March 31,  
   2018     2017     2017   
Net income $   10,524     $   11,209     $   4,413    
GAAP income tax expense     (3,557 )       (3,312 )       (2,866 )  
Income before taxes $   14,081     $   14,521     $   7,279    
Interest expense     8,094         9,328         11,596    
Depreciation     736         895         915    
Other business taxes     375         428         450    
GAAP amortization of acquisition-related intangibles     5,676          5,676         7,238    
Stock-based compensation     3,322         1,740         2,301    
Acquisition, restructuring and exit costs     518         6,001         2,603    
Debt issuance costs     6,702         788         914    
Pre-IPO governance expenses     141         347         288    
Earnings/losses from equity method investments     137          319         -    
Adjusted EBITDA $   39,782     $   40,043     $   33,584    
Adjusted EBITDA margin   37.9 %     37.9 %     33.4 %  
             
             
Net income $   10,524     $   11,209     $   4,413    
Adjustment to reflect the operating performance of the Company            
Other business taxes     375         428         450    
GAAP amortization of acquisition-related intangibles     5,676         5,676         7,238    
Stock-based compensation     3,322         1,740         2,301    
Acquisition, restructuring and exit costs     518         6,001         2,603    
Debt issuance costs      6,702         788         914    
Pre-IPO governance expenses     141         347         288    
Tax effect of above adjustments     (4,183 )       (5,692 )       (5,242 )  
Remeasurement of net deferred taxes     -         (2,422 )       -    
Adjusted net income $   23,075     $   18,075     $   12,965    
Adjusted net income per diluted share $   0.35     $   0.30     $   0.22    
             
Tax benefit of goodwill and acquired intangibles $   3,320     $   4,998     $   4,891    
Tax benefit of goodwill and acquired intangibles per diluted share $   0.05     $   0.09     $   0.08    
             
Adjusted net income with tax benefit $   26,395     $   23,073     $   17,856    
Adjusted net income with tax benefit per diluted share $   0.40     $   0.39     $   0.30    
                         

 

 
Victory Capital Holdings, Inc. and Subsidiaries
 Unaudited Condensed Consolidated Balance Sheets
(In thousands, except for shares)
       
       
  March 31, 2018   December 31, 2017
ASSETS      
Cash and cash equivalents  $   12,296     $   12,921  
Receivables     54,763         55,917  
Prepaid expenses     4,102         5,441  
Investments     12,243         11,336  
  Property and equipment, net      8,776         8,844  
  Goodwill      284,108         284,108  
  Other intangible assets, net      402,325         408,000  
  Other assets      6,532         6,055  
Total assets  $   785,145     $   792,622  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Accounts payable and accrued expenses $   25,396     $    21,996  
Accrued compensation and benefits    21,031       29,305  
  Consideration payable for acquisition of business     9,997         9,856  
  Deferred tax liability, net     5,582          4,068  
Other liabilities   13,878         12,989  
Long-term debt(1)     310,435         483,225  
Total liabilities     386,319         561,439  
       
Stockholders' equity:       
Common stock, $0.01 par value per share: 2018 - no shares authorized,     –         572  
issued and outstanding; 2017 - 78,837,300 shares authorized, 57,182,730      
issued and 55,118,673 shares outstanding      
Class A common stock, $0.01 par value per share: 2018 - 400,000,000     129         –  
shares authorized, 12,899,315 shares issued and outstanding; 2017 - no      
shares authorized, issued and outstanding      
Class B common stock, $0.01 par value per share: 2018 - 200,000,000     571         –  
shares authorized, 57,115,842 shares issued and 55,051,785 shares      
outstanding; 2017 - no shares authorized, issued and outstanding      
Additional paid-in capital      591,038         435,334  
Treasury stock, at cost: 2018 and 2017 - 2,064,057 shares     (20,899 )       (20,899 )
Accumulated other comprehensive loss     98         64  
Retained deficit     (172,111 )       (183,888 )
Total stockholders' equity      398,826         231,183  
Total liabilities and stockholders’ equity  $   785,145     $   792,622  
       
(1) Balance at March 31, 2018 is shown net of unamortized loan discount and debt issuance costs in the amount of $12.6 million.  The gross amount of the debt outstanding  was $323.0 million.
 

 

 
Victory Capital Holdings, Inc. and Subsidiaries
Assets Under Management
(unaudited; in millions)
                     
    For the Three Months Ended   % Change from
    March 31,   December 31,   March 31,   December 31,   March 31,
     2018     2017     2017    2017    2017 
Beginning assets under management $   61,771     $   58,997     $   54,965     5%   12%
  Gross client cash inflows     3,685         4,371         4,725     -16%   -22%
  Gross client cash outflows     (4,318 )       (4,077 )       (5,111 )   6%   -16%
Net client cash flows     (633 )       294         (386 )   N/M   64%
Market appreciation (depreciation)     (275 )       2,575         2,042     N/M   N/M
Net transfers      (8 )       (95 )       -      -92%   N/M
Ending assets under management     60,855         61,771         56,622     -1%   7%
Average assets under management     62,020         60,354         56,277     3%   10%
Net client cash flows excluding Diversified Equity     (633 )       294         (54 )   N/M   1072%
                               

 

 
Victory Capital Holdings, Inc. and Subsidiaries
Assets Under Management by Asset Class
(unaudited; in millions)
                                       
For the Three Months Ended   By Asset Class
      U.S. Mid Cap Equity   U.S. Small Cap Equity   Fixed Income   U.S. Large Cap Equity   Global / Non-U.S. Equity   Solutions   Commodity   Other   Total
March 31, 2018                                    
Beginning assets under management   $   25,185     $   15,308     $   7,551     $   4,789     $   4,105     $   3,028     $   1,419     $   386     $   61,771  
  Gross client cash inflows       1,203         776         394         55         443         606         127         81         3,685  
  Gross client cash outflows       (2,080 )       (922 )       (640 )       (211 )       (220 )       (77 )       (146 )       (22 )       (4,318 )
Net client cash flows       (877 )       (146 )       (246 )       (156 )       223         529         (19 )       59         (633 )
Market appreciation (depreciation)       (103 )       (67 )        6         3         14         (34 )       (102 )       8         (275 )
Net transfers       -         -         -         (1 )       (8 )       40          -         (39 )       (8 )
Ending assets under management       24,205         15,095         7,311         4,635         4,334         3,563         1,298         414         60,855  
                                       
December 31, 2017                                    
Beginning assets under management   $   23,389     $   14,833     $   7,777     $   4,806     $   3,735     $   2,591     $   1,517     $   349     $   58,997  
  Gross client cash inflows       2,335          716         403         57         366         377         71         46         4,371  
  Gross client cash outflows       (1,819 )       (873 )       (654 )       (282 )       (211 )        (62 )       (154 )       (22 )       (4,077 )
Net client cash flows       515         (158 )       (251 )       (225 )       155         315         (83 )       24         294  
Market appreciation (depreciation)       1,281         633         68         210         232         150         (16 )       18         2,575  
Net transfers       0         0         (43 )       (1 )       (18 )       (28 )       0         (5 )       (95 )
Ending assets under management       25,185         15,308         7,551         4,789         4,105         3,028         1,419         386         61,771  
                                       
March 31, 2017                                    
Beginning assets under management   $   20,083     $   14,090     $   7,726     $   5,921     $   3,460     $   1,602     $   1,882     $   202     $   54,965  
  Gross client cash inflows       2,209         1,249         503         68         208         347         108         33         4,725  
  Gross client cash outflows       (1,873 )       (1,201 )       (588 )       (711 )       (472 )       (47 )       (205 )       (14 )       (5,111 )
Net client cash flows       336         48         (85 )       (643 )       (264 )       300          (97 )       19         (386 )
Market appreciation (depreciation)       1,135         418         117         7         286         68         (15 )       26         2,042  
Net transfers   $   1         $   (2 )   $   -     $   -     $   -     $   -     $   1         -  
Ending assets under management       21,555         14,556         7,756         5,285          3,482         1,970         1,770         248         56,622  
                                                                         

 

 
Victory Capital Holdings, Inc. and Subsidiaries
Assets Under Management by Vehicle
(unaudited; in millions)
                   
For the Three Months Ended   By Vehicle
      Mutual
Funds(1)
  ETFs   Separate
Accounts
and Other
Vehicles(2)
  Total
March 31, 2018                
Beginning assets under management   $   37,967     $   2,250     $   21,555     $   61,771  
  Gross client cash inflows       2,626         481         578         3,685  
  Gross client cash outflows       (3,266 )       (29 )       (1,023 )       (4,318 )
Net client cash flows       (640 )       452         (445 )       (633 )
Market appreciation (depreciation)       (307 )        (28 )       60         (275 )
Net transfers       (31 )       -         22         (8 )
Ending assets under management   $   36,989     $   2,674     $   21,192     $   60,855  
                   
December 31, 2017                
Beginning assets under management   $   37,341     $   1,875     $   19,782     $   58,997  
  Gross client cash inflows       2,264         278         1,829         4,371  
  Gross client cash outflows       (3,121 )       (16 )        (941 )       (4,077 )
Net client cash flows       (857 )       262         889         294  
Market appreciation (depreciation)       1,577         113         886         2,575  
Net transfers       (93 )       -         (2 )       (95 )
Ending assets under management   $   37,967     $   2,250     $   21,555     $   61,771  
                   
March 31, 2017                
Beginning assets under management   $   33,975     $   906     $   20,085     $   54,965  
  Gross client cash inflows       3,945         317         463         4,725  
  Gross client cash outflows       (3,635 )       (2 )       (1,474 )       (5,111 )
Net client cash flows       310         315         (1,011 )       (386 )
Market appreciation (depreciation)       1,360         46         636         2,042  
Net transfers       (5 )       -         5         -  
Ending assets under management   $   35,640     $   1,267     $   19,715     $   56,622  
                   
(1) Includes institutional and retail share classes and VIP funds. 
(2) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.
 

Information Regarding Non-GAAP Financial Measures

Victory Capital uses non-GAAP financial measures referred to as Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the business.  These measures eliminate the impact of one‑time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the business. The Company has included these non‑GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of the Company.

Adjusted EBITDA

Adjustments made to GAAP net income to calculate Adjusted EBITDA are:

  • Adding back GAAP income tax;
  • Adding back interest paid on debt and other financing costs net of interest income;
  • Adding back depreciation on property and equipment;
  • Adding back other business taxes;
  • Adding back GAAP amortization of acquisition‑related intangibles;
  • Adding back the expense associated with stock‑based compensation associated with equity issued from pools that were created in connection with the management‑led buyout with Crestview GP from KeyCorp, the Munder Acquisition and the RS Acquisition and as a result of any equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including expenses associated with third‑party advisors, proxy solicitations of mutual fund shareholders for transaction consents, vendor contract early termination costs, impairment of receivables recorded in connection with an acquisition and severance, retention and transaction incentive compensation;
  • Adding back debt issuance costs;
  • Adding back pre‑IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO; and
  • Adjusting for earnings/losses on equity method investments.

Adjusted Net Income

Adjustments made to GAAP net income to calculate Adjusted Net Income are:

  • Adding back other business taxes;
  • Adding back GAAP amortization of acquisition‑related intangibles;
  • Adding back the expense associated with stock‑based compensation associated with equity issued from pools that were created in connection with the management‑led buyout with Crestview GP from KeyCorp, the Munder Acquisition and the RS Acquisition and as a result of any equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including expenses associated with third‑party advisors, proxy solicitations of mutual fund shareholders for transaction consents, vendor contract early termination costs, impairment of receivables recorded in connection with an acquisition and severance, retention and transaction incentive compensation;
  • Adding back debt issuance costs;
  • Adding back pre‑IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO;
  • Subtracting an estimate of income tax expense on the adjustments; and
  • Subtracting the impact of remeasuring the U.S. net deferred taxes under the Tax Act.

Tax Benefit of Goodwill and Acquired Intangibles

Due to Victory Capital’s acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide it with additional significant supplemental economic benefit.  The tax benefit of goodwill and intangibles represents the tax benefits associated with deductions allowed for intangibles and goodwill generated from prior acquisitions in which the Company received a step‑up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15‑year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangibles with a step‑up in tax basis.

Primary Logo

 

Source: Victory Capital Holdings, Inc.

492671

Multimedia Files:

View all news